UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 22, 2005
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Pre-Paid Legal Services, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Oklahoma
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(State or Other Jurisdiction of Incorporation)
1-9293 73-1016728
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(Commission File Number) (IRS Employer Identification No.)
One Pre-Paid Way
Ada, OK 74820
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(Address of Principal Executive Offices) (Zip Code)
(580) 436-1234
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition
On February 22, 2005, Pre-Paid Legal Services, Inc. (the "Company") issued
a press release announcing its earnings and operating results for the three
months and year ended December 31, 2004. A copy of the release is included as an
exhibit to this report.
Item 9.01 Financial Statements and Exhibits
The following exhibits are included with this report:
Exhibit No. Description
99.1 Company Press Release dated February 22, 2005
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Pre-Paid Legal Services, Inc.
By: /s/ Randy Harp
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Randy Harp, Chief Operating Officer
Date: February 22, 2005
For Release 8:30 a.m. Eastern Company Steve Williamson
Tuesday, February 22, 2005 Contact: (580) 436-1234
Pre-Paid Legal Announces 2004 Year End Results and 12th Consecutive Year
of Increased Membership Revenues
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Fourth Quarter Membership Revenues Up 8%; Net Income Up 25% and EPS Up 35%
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ADA, OK, February 22, 2005 - Pre-Paid Legal Services, Inc. (NYSE:PPD),
today announced results for the fourth quarter and year ended December 31, 2004.
Net income for the fourth quarter of 2004 increased 25 percent to $10.5 million
from $8.4 million for the prior year's fourth quarter. Diluted earnings per
share increased 35 percent to 66 cents per share from 49 cents per share for the
prior year's comparable quarter due to an increase in net income of 25 percent
and a decrease in the weighted average outstanding shares of 9 percent.
Membership revenues in the fourth quarter of 2004 increased 8 percent to $91.3
million from $84.2 million for the same period last year.
Net income for the full year of 2004 increased 2 percent to $40.8 million
from $39.9 million for 2003. Diluted earnings per share for 2004 increased 9
percent to $2.48 per share from $2.27 per share for the prior year due to
increased net income of 2 percent and an approximate 7 percent decrease in the
weighted average number of outstanding shares. Membership revenues for 2004 were
up 8 percent to $355.5 million from $330.3 million for the prior year marking
the twelfth consecutive year of increased membership revenue.
Net cash provided from operating activities decreased to $47.3 million for
2004 from $51.7 million for 2003, although cash provided from operating
activities before changes in assets and liabilities increased 8 percent to $51.7
million for 2004 from $47.7 million for 2003 despite the approximate $11.5
million negative cash flow resulting from sales of Identity Theft Shield
memberships during 2004 compared to approximately $7.3 million during 2003.
During 2004 we repurchased 1.5 million shares of our stock for $37.5 million at
an average share price of $25.78. From April 1999 to year-end 2004, we invested
$210.9 million in the repurchase of 9.1 million shares at an average price of
$23.23 per share, reducing the number of shares outstanding at year-end 2004 to
15.6 million. At December 31, 2004, we had $27.6 million outstanding on our
$31.5 million stock purchase loan and $17.5 million on our new office
construction loan. At year-end, we had $52.2 million in cash and cash
equivalents and unpledged investments.
From the 3rd quarter to the 4th quarter of 2004, membership fees increased
by $2 million, associate services revenue increased by $162,000, associate
services expenses increased by $410,000, membership benefits increased from
$31.1 million (35% of membership fees) to $31.4 million (34% of membership
fees), commissions to associates per new membership sold increased from $186 to
$190, and G&A increased from $11.1 million (12.4% of membership fees) to $11.7
million (12.8% of membership fees).
We will conduct a conference call to present the year end results on
Wednesday, February 23, 2005 at 8:30 a.m. Eastern Time. The conference call will
be web cast on the investor relations' page of www.prepaidlegal.com or may be
accessed by dialing (719) 457-2658. Audio replay will be available beginning at
11:30 a.m. Eastern Time on February 23, 2005 and will run through midnight
Wednesday, March 2, 2005 by dialing (719) 457-0820; pass code for the replay is
3225947. The presentation will be available on the web site indefinitely by
selecting "Earnings Calls" under the "Investor Relations" section. Questions may
be submitted prior to the call via email to investor@pplsi.com.
We are actively evaluating corporate finance methods that would be in
addition to our existing credit facilities, our cash flow generated from
operations and our existing cash balances, that would allow us to expedite
future share repurchases. We will resume our open market repurchase program
later this week as we have remaining authorization from the Board to purchase an
additional 922,182 shares and more than $10 million availability under existing
bank covenant restrictions.
As disclosed in our Form 8-K filed February 18, 2005, we have concluded
that we will be unable to complete the required management assessment of our
internal control over financial reporting as of December 31, 2004, and Grant
Thornton has advised us and our audit committee that it will also be unable to
express an opinion as to management's assessment and as to the effectiveness of
our internal control over financial reporting as of December 31, 2004. This
assessment and opinions are required by Section 404 of the Sarbanes-Oxley Act
and the rules of the Securities and Exchange Commission. Grant Thornton has also
advised us of the existence of two material weaknesses in our internal controls.
Grant Thornton has advised us and the audit committee that the lack of
management's assessment of internal controls and the disclaimer of opinion they
expect to issue on our internal controls, as well as the existence of the
material weaknesses described in the Form 8-K, does not necessarily preclude
Grant Thornton's ability to render an unqualified opinion on our financial
statements. Nothing has come to the attention of management which would cause
them to believe that the material weaknesses described in the Form 8-K have
resulted in any material inaccuracies or errors in our financial statements as
of December 31, 2004. Additional information about these matters may be found in
the Form 8-K which is available at the SEC website www.sec.gov.
About Pre-Paid Legal Services
Pre-Paid Legal Services develops and markets legal service plans across
North America. The plans typically provide for legal service benefits, including
unlimited attorney consultation, will preparation, traffic violation defense,
automobile-related criminal charges defense, letter writing, document
preparation and review and a general trial defense benefit. We also market an
identity theft protection plan. More information can be located at our homepage
on the worldwide web at http://www.prepaidlegal.com.
Forward-Looking Statements
Statements in this press release, other than purely historical information,
regarding our future plans and objectives and expected operating results,
dividends and share repurchases and statements of the assumptions underlying
such statements, constitute forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. The forward-looking
statements contained herein are based on certain assumptions that may not be
correct. They are subject to risks and uncertainties incident to our business
that could cause actual results to differ materially from those described in the
forward-looking statements. These risks and uncertainties are described in the
reports and statements filed by us with the Securities and Exchange Commission,
including (among others) those listed in our Form 10-K, Form 10-Q and Form 8-K,
and include the risks that our membership persistency or renewal rates may
decline, that we may not be able to continue to grow our memberships and
earnings, that we are dependent on the continued active participation of our
principal executive officer, that pending or future litigation may have a
material adverse effect on us if resolved unfavorably to us, that we could be
adversely affected by regulatory developments, that competition could adversely
affect us, that we are substantially dependent on our marketing force, that our
stock price may be affected by short sellers, that we have been unable to
increase significantly our employee group membership sales, that our active
premium in force is not indicative of future revenue as a result of changes in
active memberships from cancellations and additional membership sales and that
we may have material weaknesses in our internal control environment. Please
refer to pages 39 and 40 of our 2003 Form 10-K, pages 8 through 10 of our
September 30, 2004 Form 10-Q and our February 18, 2005 Form 8-K for a more
complete description of these risks. We undertake no duty to update any of the
forward-looking statements in this release.
PRE-PAID LEGAL SERVICES, INC.
Financial Highlights (Unaudited)
(Dollars and shares in 000s, except per share amounts)
Three Months Year Ended
Ended December 31, December 31,
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2004 2003 2004 2003
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Revenues:
Membership fees.............................................. $ 91,274 $ 84,199 $ 355,461 $ 330,322
Associate services........................................... 6,294 5,804 24,901 25,704
Other........................................................ 1,478 1,324 5,575 5,287
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99,046 91,327 385,937 361,313
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Costs and expenses:
Membership benefits.......................................... 31,445 28,894 122,280 111,165
Commissions.................................................. 29,797 30,412 118,757 115,386
Associate services and direct marketing...................... 7,714 7,109 29,325 28,929
General and administrative................................... 11,709 9,894 43,742 36,711
Other, net................................................... 2,363 2,290 9,578 8,546
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83,028 78,599 323,682 300,737
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Income before income taxes..................................... 16,018 12,728 62,255 60,576
Provision for income taxes..................................... 5,526 4,336 21,478 20,669
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Net income..................................................... $ 10,492 $ 8,392 $ 40,777 $ 39,907
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Basic earnings per common share................................ $ .68 $ .49 $ 2.50 $ 2.28
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Diluted earnings per common share.............................. $ .66 $ .49 $ 2.48 $ 2.27
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Weighted average number of shares:
Basic........................................................ 15,540 17,161 16,313 17,530
Diluted...................................................... 15,778 17,278 16,458 17,599
Net cash provided before changes in assets and liabilities.............................. $ 51,689 $ 47,731
Net cash provided by operating activities............................................... $ 47,263 $ 51,693
Net cash used in investing activities................................................... $ (11,322) $ (36,901)
Net cash used in financing activities................................................... $ (31,428) $ (14,191)
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